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Walgreen
has big plans to spend some of the record cash flow of $3.7 billion it rang up as of May 31. Tuesday, the nation's No. 1 drugstore chain announced it will buy a 45% stake in privately held Alliance Boots, the largest European pharmacy and beauty-products retailer, for $6.7 billion in cash and stock. In addition, Walgreen declared its heftiest quarterly common dividend ever, marking its 37th consecutive annual payout enrichment.

The new distribution will be 27.5 cents a share, up 22% from 22.5 cents. That'll cost Walgreen an additional $173 million annually. CEO Gregory Wasson said the company is "increasing its dividend in line with our commitment to return cash to shareholders and consistent with our previously stated goal of a long-term dividend payout target of 30% to 35% of net earnings." The Illinois company, founded in 1901, has paid dividends without interruption since 1933.

At a recent Big Board price of $30, Walgreen (ticker: WAG) shares yield 3.7% with the sweetened payout. The company is working down a $2 billion stock-repurchase authorization that runs through December 2015.

The Alliance Boots deal, which was 18 months in the making, is the largest such investment in Walgreen's history. The transaction is expected to close Sept. 1. Walgreen also has the option to buy the remaining 55% of Alliance Boots by the end of 2015 for an estimated $9.5 billion in cash and stock. "This is a chance to create the world's first truly global pharmacy and health-care enterprise," said Wasson. "There's nothing else out there that can match it." The combination will result in more than 11,000 stores in 12 countries, plus a wholesale pharmaceutical business with operations in 21 countries.

Last week, Credit Suisse, which is Neutral on Walgreen, lowered its price target to $28 from $31, saying overall execution risk on the Alliance Boots deal "is high." Citigroup reiterated its Sell rating and dropped its price target to $27 from $29, explaining that "while the transaction creates some global opportunities, we believe it doesn't resolve Walgreen's issues in the U.S." Morgan Stanley and Macquarie echoed similar sentiments. Guggenheim Securities, however, rates Walgreen Buy. (For more on Walgreen, see this week's The Trader.)

ANOTHER STOCK FOR WHICH Barrons.com's Johanna Bennett recently urged caution is
PetSmart,
the nation's largest specialty retailer of products and services for pets. Her concerns owed to the tepid economy and growing competition ("Don't Fetch PetSmart," May 23).

Last Monday, PetSmart enhanced its quarterly common dividend 18%, to 16.5 cents a share from 14 cents. Disbursements were initiated in June 2003 and now have been on the rise for four years in a row. The boost is worth an extra $11 million annually to investors. Phoenix-based PetSmart also added $525 million to its stock-buyback program. The new authorization is effective July 30 and will run through January 2014.

Traded on Nasdaq, the shares (PETM) set a fresh 52-week high of $69.79 Wednesday and thus yield only 1%. The stock has risen by more than 50% this past year. On Tuesday, Barrons.com noted that longtime PetSmart CFO Lawrence Molloy sold nearly his entire stake in the company, or 40,533 shares, on June 4 and June 18, for a total of $2.6 million.